SIMON BROWN: I’m chatting with Jane Shoemake of Janus Henderson Investors. Their quarterly dividend report comes out. We chat with Jane pretty much every quarter because I’m a data nerd and I love the deep dive on dividends. Jane, over the months we’ve been chatting, or the years we’ve been chatting, (globally) dividends have been picking up (in the) post-pandemic commodity boom cycle, but Q1 of this year sort of made a new record – (dividends up 11% to) over $300 billion ($302.5bn).
JANE SHOEMAKE: It was much better than we anticipated, actually. And I think if we just look back, we had global dividends fall around 10% in 2020 because of the impact of the pandemic. We saw them bounce back about 15% last year. And now we’re above pre-pandemic levels. So it’s really been a very encouraging start to 2022 for dividend investors.
SIMON BROWN: I want to come to an outlook, but we’ll leave that for the end. You do also comment that 94% of companies have raised payouts or or held them steady. I talk with a lot of CEOs and CFOs, and many of them seem to have come out of the pandemic stronger than they went in. Of course, many didn’t survive the pandemic. But certainly the companies out there are producing and are growing profits and certainly growing dividends.
JANE SHOEMAKE: Yeah, I think it’s interesting, isn’t it, because what we saw during the pandemic was a large number of companies cut or suspend their dividends. And then, when they have come back to paying dividends, some of them have come back at a much lower and sustainable level. So we’ve come back to a base that is more realistic for a number of businesses. And therefore from here I think there’s some good underpinning that they can continue to grow those dividends.
And then, in addition, the reason we’ve had one such a strong quarter is because we’ve had some extraordinary numbers out of the mining companies, and some payments, some specials as well. So that has helped – plus the banks coming back to pay dividends after the regulation we saw during the pandemic where a number around the world stopped paying. So they’ve come back as well.
So it’s really mining, oil and some of those financials coming back; hence we’re above pre-pandemic levels now. I think we’ve got more realistic levels in a lot of sectors for dividends to grow from this point onwards.
SIMON BROWN: Yeah. I remember chatting around the banks and, of course, as you mentioned, many banks around the world either just stopped or were requested [to] by authorities.
Mining is absolutely booming. But emerging markets are coming through on a headline growth number, the largest growth [being] in India – absolutely the standout.
JANE SHOEMAKE: I think in emerging markets you’ve got a reliance really on some of these mining and oil companies. And then generally you’ve got quite a lot of financials. I was looking at the South African market. There’s very much there. Metals of mining are a very big part of your index, as are the banks, financial services and insurance. When those areas are doing well, those markets tend to do well as well.
SIMON BROWN: What sort of outlook are we looking at for the rest of the year? You mentioned that sort of when dividends returned post-pandemic, they kind of came back at a more sustainable level. But 2022 has been just curve ball after curve ball, and we’ve got war in Ukraine, we’ve got inflation in Western Europe, North America; we’ve got rising rates. Have you got any sort of expectation for the rest of the year?
JANE SHOEMAKE: We had such a good strong first quarter, but we haven’t actually upgraded our forecast. We’ve kept it the same. So we’re expecting about $1.54 trillion. To put that in some context, it’s about growth of around 7%.
My point I would make to listeners is that dividends are less volatile than earnings. We are clearly facing a number of uncertainties globally and stock markets have been very, very challenged so far this year, but I think you can rely on dividends to be less volatile and to be more sustainable than some of those earnings numbers. As I said, we have re-set back to more sustainable levels in a whole range of sectors. So I feel quite confident that we are going to get some dividend growth this year, which is helpful when you’ve got inflation running at the levels it is. Dividends, unlike coupons, do give you some level of inflation protection because they can grow.
SIMON BROWN: It’s a great point. It’s also helpful, of course, in markets having a tough time of it. I was thinking, I don’t know, of Netflix, Tesla, who’ve seen share prices collapse. But two important points from that: neither of those are dividend payers. And of course share prices are not an indication of dividend at all.
JANE SHOEMAKE: No. And we’ve got to remember that what was driving markets over the last four or five years has very much been those growth stocks, those tech stocks, some of them that, as you said, didn’t pay dividends.
We’ve then had Snap today coming out; the stock was off 40% – really disappointing numbers. What we’ve seen is some of those lockdown darlings like Netflix and Snap – really, I think investors have started to project those levels of growth going on into perpetuity – and clearly they’re facing some of the challenges that other companies are facing in this global economic outlook we have.
What we do, and what we’ve always come back to, is that those companies that generate cash flow have decent, strong balance sheets and pay you that cash dividend. They’ve been out of favour for a really, really long time, and it looks to me like the market is rotating to recognise the value in some of those stocks at the moment, and is also taking some of those other share prices that I think have overextended themselves down very sharply.
SIMON BROWN: Yeah. Of course, I know a lot of investors don’t focus much on dividends, but they are a part of a return. If you’ve got a dividend-paying stock, you’re getting returns this year.
We’ll leave it there. Jane Shoemake of Janus Henderson Investors, as always I really appreciate the time.